Seven months after taking over troubled Classic Communications Inc., Cequel III co-founder Jerry Kent and his management team have hatched a plan to turn around the rural MSO that includes a name change — to Cebridge Connections — a massive technical upgrade and a total revamp of its video offerings.
While Classic will be the largest part of Cebridge — about 325,000 subscribers — the MSO will be made up of two other Cequel acquisitions: Former Shaw Communications Inc. systems in suburban Houston with 27,000 subscribers, and former Alliance Communications Inc. systems in nine states with 81,000 customers.
Combined, Cebridge will have about 450,000 subscribers in 14 states.
Classic filed for Chapter 11 bankruptcy protection in November 2001, emerging in January 2003 after its majority bondholder — Oak Tree Capital Management LLC — agreed to a debt-for-equity swap, taking equity control of the MSO and pumping an additional $100 million into its coffers.
Cequel came on board in February, agreeing to assume management control of privately held Classic and taking a small equity stake in the MSO. Cequel purchased the Shaw systems and Alliance in June and August.
Classic's name change will take effect in early October — employees were being notified on Sept. 15 — touching off an aggressive rebranding and marketing plan.
Cebridge vice president of marketing Tim Morrison said that selecting the name took about six months, and involved an outside marketing firm and two separate customer and non-customer focus groups. Morrison said the new name embodies the MSO's mission — bridging the digital divide in secondary markets by providing video and data connections to customers.
Kent said he had only one request regarding the name change — that it begin with the letter "C."
"Yes, we are superstitious," Kent said.
Kent's last two companies were Cencom Cable and Charter Communications Inc.
The $500,000 rebranding effort will involve launching a new customer Web site and a media campaign, including print, radio and television advertisements, banners and outdoor ads. Cebridge will also change customer bills, programming guides and vehicle signage.
Cebridge is also beefing up customer-retention programs within its call centers, putting more emphasis on markets scheduled to convert to local-into-local direct-broadcast satellite service, contacting existing customers with incentive programs and educating them about the advantages of cable.
About one-third of Cebridge's footprint is scheduled to convert to local-to-local this year, Morrison said.
Aggressive upgrades
The rebranding effort will start in front of an aggressive upgrade of Cebridge systems. According to that plan, 85% of its customer base — about 300,000 subscribers — will gain access to 550-megahertz plant by the middle of next year, as well as new analog and digital programming packages and a two-tiered high-speed data service. Most of the Classic plant is currently at about 330 MHz.
While that upgrade has already begun in some areas, Cebridge executives have spent the past few months working on the basics — revamping customer-care operations and restructuring field management. Cebridge said the upgrades, which also will involve reducing headends in the revamped systems from 172 to about 90 — will cost about $100 million.
Although Kent was skeptical at first about managing Classic, he said the closer he looked at the market and at changing trends in the industry, the more intrigued he became.
More realistic cable valuation multiples for rural systems, lower prices for equipment and a large pool of experienced cable management as a result of industry consolidation all made Kent think that the time was ripe for rural cable.
On the technology side, CMTS prices have dropped from $45,000 apiece to $15,000 each, and cable modem prices fell from $200 to under $50. Advances in DOCSIS technology also allowed MSOs to offer high-speed data without having to upgrade old plant.
"All that put together means that the data product is now a viable, vibrant service that we can offer our customers in the rural markets," Kent said. "And data is the savior of cable."
Cebridge senior vice president of engineering Terry Cordova said that the company has settled on 550-MHz plant for most of the former Classic systems, enough bandwidth to support analog broadcast, digital cable including high-definition television, and allocations for voice-over-IP telephony and video-on-demand.
Cordova said the smaller bandwidth is possible in rural markets because they usually have about four off-air broadcast channels that the system must carry — compared to 15 to 17 must-carry channels for metropolitan systems. Smaller systems also have about one local-origination channel — compared to the four-to-eight local-origination channels typical of larger markets. That helps free up a huge amount of bandwidth for advanced services.
Dan Ryan, president of Precis Communications, which operates systems in rural markets in Utah and Nevada with about 14,000 subscribers, agreed that technology costs have dropped dramatically in recent years. Ryan said that Precis is in the middle of its own upgrade to 550 MHz, adding that he estimates it will cost about $500 per subscriber.
About 15% of Cebridge's customer base will not be upgraded, mainly because they are in extremely small markets — some systems serve less than 100 subscribers — and could not justify the additional cost.
Ryan said that is inevitable, especially with rural systems.
"We call them harvest systems," Ryan said. "Basically, we're using the cash flow out of those to do other products and services. We understand that you pay a price for that in subscriber loss. But you've got to focus your resources someplace."
Regional game plan
Organizationally, Kent and his team decentralized management, splitting the company into three regions: East (Arkansas, Missouri, Louisiana and Ohio); North (North Texas, Kansas and Oklahoma); and South (South Texas and Louisiana). Each region reports to Cebridge president and chief operating officer William Shreffler.
Shreffler was senior vice president of operations for Charter's Midwest division before joining Cequel earlier this year. He said that his first order of business was to refocus the field operations and to improve customer care.
"From an operations standpoint, when we became involved [with Classic], we realized we had to move the needle from a survival mode that the Classic folks had been living under and transition that to a growth-oriented company," Shreffler said.
Shreffler first focused on field operations, initiating programs to drive more company involvement in the community. He also created an organizational structure at the regional level to ensure that each area has the tools to get the job done.
Each region has a local marketing person, technical operations person and an administrative person in place "to identify needs, drive the business and make sure we can move the needle," Shreffler said.
He added that the regions will initially focus on high-speed data, hoping to triple the customer base by the end of the year.
Cebridge plans to reach that goal by offering two tiers of high-speed service – a 512 kilobits per second downstream service priced at $49.95 per month ($39.95 with analog or digital cable service) and a 128 Kbps symmetrical service for $39.95 per month ($29.95 bundled with video). Customers in the Houston area currently receiving 1.5-megabit speeds will continue to do so.
Revised video
Cebridge also has repackaged its digital-cable offerings into genres, a move to make the digital service more compelling to customers.
Cebridge senior vice president of programming Patty McCaskill, another Charter alumnus, said that in the past Classic had offered virtually all of the channels on the Comcast Corp. Headend In the Sky service for a flat rate of $13.99 per month.
Now Cebridge will offer three different genre packages — family, sports and movies — for $3.99 per month, or all three for $10. A fourth package, a Hispanic service, will be available in select markets for the same price.
In addition, McCaskill said that new networks will be added to the basic package in some areas, like The WB Network in areas that don't have a local affiliate.
"In the past there was a one-size-fits-all digital package," McCaskill said. "It was a difficult sales proposition, especially in areas where the average income was $30,000 to $50,000 per year. At $13.99, digital was a pretty huge jump for these folks."
McCaskill said the family package would include channels like the Discovery digital networks, Biography, Toon Disney, Bloomberg TV and Tech TV. The sports package will include ESPN2, Outdoor Life Network, The Golf Channel, Speed Channel and some Fox Sports Net regional channels. The movie package will include WE: Women's Entertainment, Trio, Lifetime Movie Network and Sundance Channel.
